Goldman cuts 3-month equity view

Investors and traders on the East Coast hit the road early last Friday to get out ahead of the storm. And while they were trudging home, Goldman Sachs was readying a stormish-call of its own.

In a note dated Feb. 8, which surfaced in some in-boxes on Monday, the investment bank cut its rating on global equities to neutral from overweight on a three-month horizon, citing some shakiness over the near-term view.

“The potential for a strong rally from here is likely to be limited in the near term as U.S. equities are trading slightly above our estimates of current fair value given current economic conditions, and European equities only have upside to fair value if we assume that bond yields remain at the current very low levels,” says Goldman.

The strategists say that over three months, the U.S. fiscal outlook and Europe sovereign situation remain downside risks. They are not looking for any sell-off to be “long-lived or particularly large,” but they are also not seeing much in the way of upside risks.

However, while they are making a neutral call here, they say that it’s so close that they’d view any sell-off as an opportunity to add exposure again.

Over 12 months, Goldman is sticking to an overweight stance on global equities, saying returns will likely be supported by a combination of a rebound in global growth, accelerating earnings growth and declining risk premium. They expect global growth to improve from 3.1% in 2012 to 3.3% in 2013 and accelerate further by 2014. Fiscal contraction drag will keep the U.S. from anything more than trend-like growth by the fourth quarter of this year, they say.

Regionally, their calls are unchanged. They are overweight Asia ex-Japan and underweight the U.S. on both a long and short-term basis.

The other call from Goldman is an upgrade on its cash position to overweight over three months. That’s to balance out its view on U.S. and German bond yields, which remain far below the investment bank’s estimates of fair value. The firm is keeping an underweight there in case things realign faster than it expects.

So far, markets aren’t getting too worked up over the Goldman note, as stock futures are up. Check out Shawn Langlois’s 6 market gut checks for Monday, plus what to expect from markets this week.

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